LONG TERM CARE INSURANCE IN ITALY

Transcription

1 XXVII ICA - Cancun, 2002 Health Seminar Critical Issues in Managing Long Term Care Insurance LONG TERM CARE INSURANCE IN ITALY Ermanno Pitacco University of Trieste

2 Outline The scenario The need for LTC covers The LTC insurance market Public vs private: towards a LTC policy? The insurers role

3 The scenario Demographic scenario: ageing population Decreasing mortality and increasing life expectation Decreasing fertility Decreasing family size Disability scenario High prevalence rates at very old ages Increasing prevalence rates in the population Immigration Trends

4 AGEING POPULATION Age Males Females Age Males Females % % % % % % % % % 5.18 % % % Age and sex distribution - Source: ISTAT

5 DECREASING MORTALITY (1) SIM 1881 SIM 1901 SIM 1931 SIM 1951 SIM 1961 SIM 1971 SIM 1981 SIM Survival functions Source: ISTAT

6 DECREASING MORTALITY (2) SIM 1881 SIM 1951 SIM 1981 SIM Curves of deaths Source: ISTAT

7 INCREASING EXPECTATION OF LIFE (1) F 60 M M = males, F = females Expectation of life at birth Source: ISTAT

8 INCREASING EXPECTATION OF LIFE (2) V1 60 V2 V V1 = expectation of life at 60 V2 = Lexis point (age of max prob of death) V3 = expectation of life at birth Source: ISTAT

9 DECREASING FERTILITY 3 2,5 2 1,5 1 0, Average number of children per woman Source: ISTAT

10 DECREASING FAMILY SIZE (1) Distribution of the family size Source: ISTAT

11 DECREASING FAMILY SIZE (2) Average family size Source: ISTAT

12 DISABILITY PREVALENCE (1) Males - ADLs Males - ADLs 3 Females - ADLs 2 Females - ADLs Age group Disability prevalence rates among males and females (prevalence rates x 100) Sources: ISTAT (1990), ANIA

13 DISABILITY PREVALENCE (2) Age group Age group Age group Males Males Males 15 Females 15 Females 15 Females ADLs ADLs ADLs Disability prevalence rates among males and females (prevalence rates x 100) Sources: ISTAT (1990), ANIA

14 IMMIGRATION 2,5 2 1,5 1 0, % foreign residents Source: ISTAT Effects on population dynamics?

15 MORTALITY TRENDS RECTANGULARIZATION EXPANSION age ω 0 age ω ω' rectangularization a higher concentration of deaths around the Lexis point expansion moving Lexis point (LONGEVITY RISK)

16 JOINT MORTALITY AND DISABILITY TRENDS T = total expected life H = expected life in the healthy state COMPRESSION THEORY PANDEMIC THEORY EQUILIBRIUM THEORY expectations T H expectations T H expectations T H calendar year calendar year calendar year Three theories dramatic differences in LTC need

17 Trends in the demand for LTC at an individual level: compression theory decreasing equilibrium theory constant pandemic theory increasing at a collective level (with an increasing elderly population): compression theory stable equilibrium theory increasing pandemic theory dramatically increasing

18 UNCERTAINTY IN FUTURE TRENDS Trends lead to the use of projections Risks for the provider of LTC covers random deviations (process risk: a pooling risk) systematic deviations (parameter or model risk, implied by uncertainty of future trends: a nonpooling risk) a critical issue in managing LTC covers technical tools risk based capital safety loadings reinsurance

19 The need for LTC covers originates from demographic trends increasing expectation of life low birth rates expectation of life in the disability state (increasing?) social developments changes in the structure of the family changes in the welfare system

20 Barriers obstacling LTC insurance diffusion demand side difficulties in perceiving (at young ages) the value of LTC benefits high cost of LTC covers (at old ages) supply side lack of reliable experience data uncertainty about future trends in mortality and old-age disability adverse selection moral hazard claims control critical issues in LTC insurance construction

21 The LTC insurance market Market developments in Italy LTC covers became available in years later than in U.S. the first LTC product offered by SASA VITA (August 1997) 6 ADLs based; benefit trigger: 3 ADLs fixed amount annuity 12 insurers at present offer LTC products (some will offer LTC products in a very near future)

22 The products Types of benefits fixed amount annuities (usually with investment profit participation) amount dependent on the disability level (ADLs) amount independent of the disability level indemnity insurance, i.e. nursing and medical expense reimbursement (one insurer) Premiums single premium periodic premiums level premiums recurrent single premiums waived during disability

23 Structures of annuity products stand alone LTC annuity LTC cover as a rider benefit (e.g. whole life assurance + LTC annuity, possibly as accelerated benefit) enhanced pension b'' b b' time appealing product (not a pure risk product) easily embedded into pension schemes lower systematic risk for the insurer

24 Technical bases Lack of insurance experience Data available at population level (e.g. ISTAT) are prevalence data can be used to evalutate probabilities of being disabled sound actuarial structures are based on transition probabilities, or on probabilities of becoming disabled and remaining disabled (inception - annuity models) possibility (used in actuarial practice) PREVALENCE RATES + HYPOTHESES PROBABILITIES OF BECOMING AND REMAINING DISABLED

25 Technical basis suggested by ANIA (1997) Difficulties in using prevalence rates Data from other countries Proposal: use data from Germany (data from Germany already used in Italy in pricing disability benefits provided by IP policies) Data structure mortality of disabled people: obtained increasing population mortality (aggregate mortality) probability of becoming disabled: obtained from German data (adjusted, to allow for differential disability among males and females) allowing for different disability states (ADL based) via weighting annuity benefits with prevalence rates

26 Need for experience rating critical issue in managing LTC covers monitoring the insured population disability inception rates (possibly allowing for various ADL-based states) mortality of healthy people mortality of disabled people (possibly allowing for various ADL-based states) nursing and medical costs adjustment of premiums according to credibility principles reserving based on experience

27 Public vs private: towards a LTC policy Present situation 1st pillar daily allowance to person providing assistance (paid by the social security system) other allowances depending on local health care provisions (a poor presence) 2nd pillar some pension scheme provides LTC annuities in the form of enhanced pensions no sick fund operates (lack of legislation) (a rather poor presence)

28 3rd pillar individual LTC policies Tax concessions (since 2001): detraction of 19% of LTC premium from taxes; maximum amount of premiums (including premiums for death and disability covers) = 1300 Euro LTC benefits tax-free (a slowly increasing market)

29 Possible future settlements improving the diffusion of LTC insurance cover (see ISVAP, 2001) compulsory LTC insurance, through mutual sick funds (and possibly insurance companies) LTC provision organized by the National Health System public + private providers financing LTC insurance: funding vs pay-as-you-go LTC cover as a compulsory item in pension schemes enhanced pension benefits funded via periodic contributions

30 The insurers role Also depending on the national LTC policy, the insurer can: provide individual covers, e.g. stand-alone annuity covers enhanced pension products nursing and medical expense refunding provide groupe insurance products provide insurance cover for pension schemes including LTC benefits e.g. enhanced pensions

31 provide stop-loss covers for sick funds including LTC benefits nursing and medical expense refunding fixed amount annuities (possibly ADL based)

32 References ISVAP (1998), Long Term Care - Le prospettive per il mercato assicurativo italiano. Due modelli a confronto: Germania e Stati Uniti, Quaderno n. 3 ISVAP (2001), Il costo e il finanziamento dell assistenza agli anziani non autosufficienti in Italia, Quaderno n. 11 Proceedings of the 114th EU Insurance Supervisors, Helsinki, 2000 Proceedings of the 116th EU Insurance Supervisors, Oslo, 2001 G. Galatioto (1997), Long Term Care Insurance. Gli aspetti tecnicoattuariali ed i dati statistici. Ipotesi di base tecnica, ANIA S. Haberman, E. Pitacco (1999), Actuarial models for disability insurance, Chapman & Hall / CRC

33 Many thanks for your kind attention!